Our recent interaction with Vinod Dasari, MD & CEO, Ashok Leyland (AL), reinforces our confidence in the company’s structured approach to gain market share. Benefits of the same were apparent in FY15— M&HCV truck market share up 450 bps y-o-y to 27.2%. AL has also reaped benefits of: (1) sharper recovery in South versus rest of India; (2) dealership expansion/after sales focus in non-South regions (60% of sales); and (3) introduction of 37T (adaption of 25T offering) multi-axle trucks and trailers (largest market share contributor). Domestic demand outlook is improving with higher tonnage growth. We believe the Q4FY15 model mix could be the best as AL expects recovery in 7.5-16T trucks. This can be margin dilutive, ceteris paribus. Also, Tata Motors’ sharpening focus on the 37T segment could queer AL’s pitch. We perceive downside risks to our volumes and EPS estimates.
Q4FY15 product mix was the best-ever for the industry and AL as well. This is attributable to recovery in volumes of higher tonnage rigid/trailers and continued pressure on medium commercial vehicles. Management expects demand for intermediate vehicles to bounce back and hence normalise volume mix.
Our volume forecast factors in 28%/20% growth in FY16/17. We maintain ‘hold’ with target price of Rs 69 per share.